Yes, Nokia (NOK) the Finnish mobile device maker as we know it, is doomed for bankruptcy and reorganization. Many of us, of course, still refuse to see the writing on the wall and invest accordingly. Nokia, a one-time story stock, has been shockingly bludgeoned from $40 to today's meager $2 bid that is a cut above the casino penny stock zone. On the road to zero, Nokia cheerleaders, such as Jonathan Yates, have championed this battered stock as the "Next Ford (F)." Longs are quick to identify Nokia as a turnaround play and prospective receptacle for government and corporate bailout cash.
Despite its recent gaffes, Nokia still touts an impressive brand name and extensive patent portfolio. As Microsoft (MSFT) has quickly learned, however, a brand name and patented technology cannot stop the bleeding of a structurally damaged organization. For Nokia shareholders, any cash infusion will prove to be a mere quick fix solution and distraction from the fact that this business is now a dinosaur. At this point, it is inevitable for corporate vultures to encircle headquarters, before Nokia inevitably declares bankruptcy and sells off scraps to the highest bidder.
A Felled Giant
Nokia, like many of our institutions, peaked in the late nineties. Nokia rose to the height of its powers on the strength of its functional mobile handsets that were reliable for making calls, recording voicemails, and sending text messages. By 1998, Nokia had ridden the GSM (Global System for Mobile Communications) technology, mobile revolution, and bubble economy gravy train to emerge as the world's leading handset device maker by sales units. In the accelerated time line of tech parlance, Nokia has not felt like a winner in generations.
In retrospect, Nokia's ascension to the top of its sector has proven to be little more than a pyrrhic victory. For fourteen years, Nokia executives won trifling battles over units sold, but fell asleep at the wheel and lost the ultimate war over innovation, cultural appeal, and profit margins. As we trudge through the 21st Century, Research in Motion (RIMM) and its Blackberry phones led a yuppie revolution that came and went. Amid the real estate boom, white-collar professionals closed deals on then sleek Blackberries. At the time, clunky Nokia phones were abandoned as a fashion faux pas for the hired help. From there, the Apple (AAPL) iPhone and Google (GOOG) Android assumed command in mobile and decimated Nokia profits with their one-two punch leadership over the smartphone market. Earlier this year, Samsung (OTC:SSNLF) became the world's leading mobile device maker per units sold.
The 2007 Apple iPhone changed the game. The iPhone introduced an important gateway into Apple's closed circuit Loop that includes the iPod, iTunes, and iMac. Behind the strength of the iPhone, Apple has transformed itself into a formidable cash cow that is tallying 67 percent annual income growth over the past four years. For 2011, Apple posted $26 billion in profits. Concurrently, Nokia's $1.2 billion 2011 loss proves that this company is moving in the opposite direction.
Nokia is fighting for its life.
Enter Microsoft. Exit Microsoft.
In February 2011, Microsoft executives boarded a plane for Finland and effectively handed over briefcases full of cash to Nokia executives. The partnership proposed that these two corporations would integrate Microsoft software alongside Nokia hardware to design a competitive smartphone. Months later, Nokia brought its $100 Windows Lumia phone to market. Amid a grand spectacle of pomp, the Nokia, Microsoft, and AT&T (T) marketing machines mobilized in concert and ordered us to buy. In April 2012, rapper Nicki Minaj danced the night away at Times Square to a Lumia backdrop, while foremost Apple geek Steve Wozniak even hopped on the bandwagon to describe the phone as a "friend, not a tool."
As the smoke clears, we are left to discern Lumia sales reviews that Stephen Elop, CEO, describes as "mixed." Nokia sold 2 million Lumia phones in Q1 2012, which falls well short of the 35 million iPhones sold during the period. I, however, would describe even this anemic Q1 Lumia sales data as greatly illusory. During Q1, Nokia offered a $100 rebate to its Lumia customers as compensation for minor technical glitches. In other words, Nokia was practically giving these things away amid rollout and a marketing blitz that its overzealous AT&T carrier pitched as "the greatest launch ever."
In terms of a last-ditch effort to save the company, this Nokia Lumia project has degenerated into a complete fiasco. Today, the looming iPhone 5 release dominates the top end of chic, while Android phone makers slash prices to attract consumers who demand low-cost functionality. Severe losses, write downs, cost cuts, and layoffs are now the order of the day at Nokia. On June 14, Nokia announced plans to layoff another 10,000 (20-percent of total workforce) employees by 2013. This news arrives amid another round of profit warnings and increased restructuring charges that will subtract more than $1 billion away from Nokia's already weak cash position and bottom line over the next two years.
To add further insult to injury, Microsoft refuses to offer its Windows 8 upgrade for old Nokia Lumia phones. Microsoft will also supply Windows 8 software to Huawei Technologies, a Chinese mobile company that directly competes against Nokia at the bargain bin smartphone price point.
The Bottom Line
Microsoft, yet again, threw its partner under the bus at the worst possible time. Seemingly overnight, Microsoft destroyed all goodwill that it effectively bought and sold between Nokia and its customer base. Nokia Lumia customers who were sold out as "beta testers" will reject any idea of brand loyalty. Even worse, Microsoft proves that it is more than willing to line its own pockets, at Nokia's expense.
Microsoft completed its due diligence and has chosen to abandon ship. With Microsoft purchasing its one-way ticket out of Dodge, Google and Samsung are likely to also refuse either partnering up, or making an outright bid for Nokia.
As corporate interest wanes, the pendulum swings over to Finland government officials. Throughout this debacle, Westernized investors continue to speculate that an American-style big three bailout is on the way. Americans acknowledge Ford as a national champion of capitalism, assembly lines, unions, municipal fleets, Detroit, and Rust Belt manufacturing. In 2009, Washington transferred billions of taxpayer dollars to Detroit, in the form of direct capital infusions and low cost loans to re-engineer our auto industry out of the depths of bankruptcy. For lawmakers, failure to do so would have been political suicide. For shareholders, a 2009 bet on Ford took stock gapped up from $2 to $18 over the next twenty-four months.
Scandanavia, of course, is a bastion of liberalism. Finland, especially, is a historical counterweight to both Western capitalism dogma and left-wing Eastern Bloc idealism. Contrary to Washington, opening up Treasury coffers to spend billions of dollars on corporate bailouts amid global recession would be tantamount to political suicide in Helsinki. On June 21, Finland Prime Minister Jyrki Katainen dismissed the idea of any Nokia bailout as he proclaimed boisterously, "this is not our business."
Nokia is no Ford.
Disclosure: I am long AAPL.